Have Indian Carriers Missed the Boat on Alliance Membership?

It has been a very turbulent few weeks for oneworld alliance. A few weeks ago, Qantas and Emirates announced a close cooperation agreement for Australia-Europe traffic. Then, earlier this week, it was announced that Etihad, Air Berlin, and Air France-KLM are entering a cooperative agreement. Air Berlin is also a oneworld member, but it appears that it, along with Etihad, are actually lining up more with SkyTeam Alliance members. Then, later on the same day, it was announced that Qatar Airways is joining oneworld alliance, in cooperation with British Airways.

What can clearly be seen from these 3 moves is that oneworld is splintering, with each of the three Gulf carriers pulling their preferred partners in different directions. It is showcasing the new paradigm which will appear over the next few years – individual carriers will closely align with other carriers which suit their needs best, instead of focusing on which carriers will suit the alliance best.

“Oneworld is secondary [for Air Berlin],” Etihad’s CEO James Hogan was quoted as saying recently. Etihad took a ~30% stake in Air Berlin some time back.  Instead, Air Berlin will focus on creating synergies and aligning networks with Etihad, Air France, and KLM, despite the fact that none of the carriers mentioned are fellow oneworld partners.

Similarly, Qantas has aggressively been pursuing a strategy of aligning with partners which are most valuable. With service to Africa, the airline has for years worked with South African Airways, despite the fact that they are in different alliances. With the new agreement with Emirates, oneworld partners will become secondary for services to Europe.

A similar phenomenon can be observed in other alliances as well. Delta Air Lines has aligned with Virgin Australia on USA-Australia sectors, despite not being alliance partners.

In every alliance, the core group of partners has gotten anti-trust immunity and agreed to lucrative joint ventures* on trans-atlantic sectors, pushing the concept of metal-neutrality. Metal neutrality is where carriers find it equally profitable for a passenger to be carried on its aircraft or its competitor’s aircraft, allowing better utilization and fleet planning. Delta Airlines operates a variety of services from the USA to Paris and Amsterdam from non-hub cities because it has a better cost profile and aircraft for those specific missions.

*An interesting read on the advantages of joint-ventures can be found here.

Star Alliance has taken joint ventures even further – United, Lufthansa Group, and All Nippon Airways all have joint ventures with each other, forming a core group of partners which strengthens the alliance and keeps it together.

But the alliance is not an imperative part of any of this – carriers are perfectly capable of creating bilateral partnerships to suit their own needs. Removing alliances is removing an unnecessary middleman which simply adds costs and complications. And as alliances get larger and more unwieldy, they will reduce in importance – carriers will focus more on their individual goals.

This splinter in oneworld is the beginning of the end of alliances as we know them…

***

While these events were happening on the other end of the globe, Civil Aviation Ministry Ajit Singh was busy drafting a letter begging for Air India to be granted entry into Star Alliance. Indeed, there were some decent points about how Lufthansa took advantage of benefits given for being partners with Air India without returning the expected favor, but it is quite honestly irrelevant at this point. The 2000s was the decade of the alliance, and Air India is desperate to get in on that action, just as it is coming to an end. And let’s not discuss Jet Airways, which has sent so many mixed signals that we have to wonder whether they will ever get around to that love affair with Lufthansa which they profess to desire.

Jet, at least, has developed some kind of strategy regarding airline partners. They are willing to partner with practically everybody, from bmi to Barista Lavazza. The carrier has thrived on the business of feeding other carriers’ operations from India, and therefore they are eager to codeshare with every airline possible – it increases the route network and potential market without Jet actually having to fund expansion.

Air India, on the other hand, has relatively few partners. Mileage in Flying Returns, the frequent flyer program, can only be accrued on two partners – Lufthansa and Singapore Airlines. The carrier has blindly pursued Star Alliance membership and all the potential partners without evaluating further possibilities. And indeed, that may be one of the reasons why Air India has such limited support from within Star Alliance – they are only (very loosely) aligned with two carriers out of a group of 28! Then, there was the proposed cooperation with Adria Airways and a scissor hub in Ljubljana which they spent far too much time considering, but I won’t go there…

One has to wonder why Jet Airways and Air India aren’t actively pursuing deeper cooperation with strategically important partners instead of sitting back and waiting for potential alliance membership to solve all their problems. Share your thoughts in the comments below.

Jet Airways Moves Closer Yet to Star Alliance

Yesterday, airlineroute announced that from mid-November, Jet Airways will not be serving Chennai-Brussels anymore. It appears that this reduction is moving towards a hub in Munich instead, so that Jet can be integrated closely into Star Alliance.

The first sign of this was also yesterday, when Munich Airport posted a schedule for Jet Airways’ operation of Munich – Bangalore! This is the largest Indian destination which is still unserved from Munich by Lufthansa.

The tentative schedule is set to begin in mid-March, and is as follows:

Flight No. Departure Arrival
9W 154 BLR 04:05 MUC 08:35
9W 153 MUC 12:00 BLR 02:40

A 4AM departure isn’t so nice, but this flight connects perfectly with Lufthansa’s bank from Munich. More importantly, the flight will operate out of Lufthansa’s Terminal 2, presumably to facilitate convenient connections.

Jet Airways has been sending lots of mixed signals regarding alliances, but it looks like they’re moving closer to Star in earnest now.

Jet Airways May Not Join Star Alliance After All

 

The alliance saga of the carriers of India continues…

After Star Alliance formally invited Jet Airways, and Air India got out of the way, it seemed like Jet Airways joining Star was just a matter of time.

But, this morning, a major Indian newspaper published an article titled “Jet Airways may not join Star Alliance” –

Star Alliance, the world’s largest airline alliance, may not get any member airline from India — one of the world’s largest growing aviation market.

After the 27-strong member alliance rejected Air India’s application for a membership, Jet Airways, who is in talks with the alliance, may decide against joining the group.

“We are talking to all three alliances and may not join Star Alliance because they already have a strong member in this side of the world,” said a senior Jet executive on condition of anonymity.

The Naresh Goyal-promoted airline is also in talks with global alliances Oneworld and SkyTeam.

“We do not know how much will we benefit by joining the alliance with Singapore already a member. There is a thinking that the benefits will not be much from Star Alliance and our talks with the other two airline alliances is also on,” he said.

Now, I’m not exactly sure what Jet Airways is trying to accomplish with this. Are they trying to get a better deal from Star? Are they actually choosing a different alliance? Are they totally confused, just like we are?

It is no secret that Singapore Airlines is a member of Star Alliance. They joined over a decade ago – not yesterday. And on the other hand, what is so special about Singapore? Thai and Lufthansa also have comprehensive Indian networks… And in other alliances, Cathay, SriLankan, and Malaysia Airlines (oneworld) also serve many Indian gateways. And SkyTeam has lots of Asian carriers as well.

There’s no doubt that Jet should look at all its options, but this is getting ridiculous. At this rate, there won’t be any Indian carriers in alliances even a decade from now.

Air India And Star Alliance Resume Membership Talks

A report from the Economic Times

suggests that Air India and Star Alliance have resumed membership talks. Now people who know me probably expect that I’m thrilled. I always fly Air India on domestic India flights, since they are the best carrier domestically. And I always fly Star Alliance internationally, so that I can avail of my status benefits. If Air India joins Star Alliance, I get those status benefits domestically, my Air India miles become more valuable, and my overall flying experience would be better. So it’s obvious that I should be thrilled about this news, right?

Well people who expect that I’m thrilled are wrong. I am not thrilled in the slightest. In fact, I am furious to hear this. Why? Because Star Alliance decided to play hardball and be downright insulting to Air India and the Government of India, and now it looks like they are going to get away with it. It seems that Air India and the Government of India are just willing to give up and let Star Alliance win. And I don’t like to see my country in this helpless state. I don’t like it at all.

To better understand the Air India/Star Alliance saga, we have to take a trip down memory lane. Star Alliance first announced that they had invited Air India to join back in 2007, almost 5 years ago. As a result of this invitation, many Star Alliance carriers, most notably Lufthansa, expanded Indian operations. More slots were issued to these carriers by the government of India. Bilaterals were improved. There was talk of the Government allowing Lufthansa to bring in the A380 to India once it was introduced to service. Star Alliance knew fully well that by bringing Air India into the fold, they would get preferential treatment in India. They decided that even with all the shortcomings of Air India, these benefits would be worth more to them.

Between 2007 and 2011, a number of delays to Air India’s entry happened. IT issues, general Indian bureaucracy issues, delays in the Air India/Indian Airlines merger, and other such issues delayed Air India’s entry into Star. It’s India – the concept of “on-time” doesn’t exist. This isn’t to excuse the poor form in which Air India was, but other Indian carriers haven’t exactly fared better. Kingfisher was suspended recently from joining oneworld as well.

It’s just the way things are.

As Air India’s entry got delayed more and more, Star Alliance became progressively more fed up. Star decided to get greedy and start courting Jet Airways as well as Air India. Obviously this didn’t fly with Air India or the Indian government. The advantages of alliance membership would be significantly diluted for Air India if another Indian full service carrier were also permitted to join the same alliance. The government of India also was concerned from a competition perspective of allowing 2/3 of the full service carriers to enter a single alliance.

However, by early 2011, Star Alliance was so fed up of the Air India delays that they issued an ultimatum – If AI didn’t fulfill all membership requirements by July 2011, they would be rejected from the alliance. Meanwhile, Star continued to try to get Jet Airways into Star Alliance as well. Early 2011 was a busy time for Air India. The government got them the funds required, and they showed the world that when called upon, Indians can actually get work done. The merger was completed, IT issues ironed out, and joining requirements were met by the deadline. A Star Alliance exec said something to the effect of, “I can’t believe that they actually managed to do it. They’ve probably gotten more done these past few months than the last few years.”

Air India was all ready to join Star Alliance by the deadline. They passed the compliance audit without a problem. And then Star Alliance decided to play hardball. They insisted that Air India and the Government of India agree to an agreement which would allow Jet Airways to also be inducted as a member soon after Air India had joined. Air India and the Government balked. However, Star Alliance backed down and didn’t make a big deal out of their decision.

Or so they thought. Imagine the shock that went through the government and Air India when Star Alliance announced that they had voted to suspend the application, mere days before Air India was preparing to finally join. People were furious. The CMD of Air India was sacked soon after, and not joining Star was one of the main reasons why that happened.

Now, it appears that Air India has gone back begging to Star Alliance to let them in, even if it means that Jet Airways gets let in too. And that’s why I’m not happy. Air India was in an excellent position – With Kingfisher going to oneworld and Jet Airways being courted by SkyTeam, they could have potentially locked Star Alliance out of the Indian market by not accepting Air India.

Air India should not bow to Star Alliance’s demands. After what happened, they are quite frankly insulting. I sincerely hope that some sense gets knocked into the airline before they agree to let Jet Airways in.

Star Alliance Unveils Their New Seat

 

Star Alliance Logo; Source: Star Alliance

The major event that overshadowed everything else at last month’s Star Alliance Annual CEO meeting in Addis Ababa was Ethiopian Airlines’ entry to Star Alliance.

However, many other interesting things happened at this meeting as well.One interesting thing was that Star Alliance unveiled their new common longhaul economy seat. Back in October of last year, Star Alliance announced that members would be developing a seat jointly with B/E Aerospace. This seat is meant standardize seat offerings on Star Alliance longhaul flights, and help secure favorable bulk pricing from B/E Aerospace. Now that the seat is unveiled, it looks like there are many more benefits of the seat as well.

 

Source: Star Alliance

The first 3 customers for the seat are Lufthansa Airlines, Lufthansa’s subsidiary Austrian Airlines, and Air China. Between these 3 airlines, over 15,000 seats will be installed in 2012. Compared to the overall count of longhaul economy seats on Star Alliance airlines, over 800,000 seats, these new seats are a drop in the bucket. But they mark a change that is important to think about in many ways.

 

Source: Star Alliance

The basic premise behind creating a common seat is very interesting. Firstly, Star Alliance wants to standardize offerings among all their airlines. This points towards stronger Star Alliance branding. It is a step in the direction of stronger alliance brands. Star Alliance wants you to know that all of their longhaul economy seats are comfortable. In fact, they want the seats to be the same, so that the customer knows exactly what to expect. This is a big deal. I often say that in the future, you won’t know whether you are flying United or US Airways, you will just know that you are flying “Star Alliance.” You will book a ticket with Star Alliance, fly on an aircraft with a Star Alliance livery, with a Star Alliance flight number. Basically what the US Regional industry is today, but on a global scale. Now, that is far in the future, but this standardizing seats is a step in the process.

 

Source: Star Alliance

The seat uses a lot of innovative new features. Most importantly to the airlines, the weight of the seats is significantly less than standard seats today. Less weight means less fuel burn, increasing the cash in airlines’ pockets. The seat also reclines at the base, increasing comfort for the passenger behind.

It will be interesting to see which airlines adopt the seat in the future…

Why LATAM Is Practically Guaranteed To Join OneWorld Alliance

Almost a year and a half after Chile’s LAN Airlines and Brazil’s TAM Airlines announced that they planned to merge, they have finally been approved by the aviation regulators in Brazil and Chile. Shareholders of LAN have also agreed to the merger.

LAN is a member of oneworld Alliance, as it has been for over a decade. It has strong ties with many oneworld airlines, especially American Airlines and Iberia. Many of its traffic flows are optimized for oneworld connections. There is no doubt that oneworld is an important part of LAN’s strategy. Luckily for LAN, oneworld’s strategy for South America depends on LAN. Without LAN, oneworld would be pitifully weak in South America. This means that oneworld will likely sweeten the deal quite a bit to try to retain LATAM (the planned name after merger).

In contrast, TAM is a recently joined member of Star Alliance. It joined mere months before the merger was announced. It would not surprise me if joining Star Alliance was just a way to attract LAN for the merger. Its ties with Star Alliance members have not had the time to mature, so it is not as dependent on alliance traffic as LAN is. While TAM doesn’t really need Star Alliance that badly, Star Alliance still wants LATAM. The combined airline is focused to have over 60% of market share in South America, and every alliance wants that kind of coverage. That said, losing LATAM wouldn’t be as devastating for Star Alliance as it would be for oneworld. Avianca Airlines, TACA Airlines, and Copa Airlines all are in the process of joining Star Alliance, and all of them have reasonable connectivity in South America. In addition, Star Alliance has TAP Portugal as a member. TAP serves numerous destinations is Brazil, keeping some semblance of connectivity for Europeans and Asians to Brazil.

A major factor in the alliance decision is the restrictions that regulators put on the combined airline. Chile’s anti-trust regulator, the TLDC, approved the merger in September 2011. It placed 11 conditions on the merger. The majority, such as divesture of slots and restrictions on service to Santiago, have no bearing at all on the alliance decision. The TLDC declared that LATAM must be in a single alliance – it cannot be split between oneworld and Star Alliance. In addition, it declared that LATAM cannot join an alliance that Avianca-TACA is a member, or in the process of joining. The decision also decided that LATAM cannot have any codeshares with airlines outside the alliance, but that condition is being appealed.

There is no doubt that this decision heavily favors oneworld over Star Alliance. For one, the decision mandates that LATAM cannot join Star Alliance as long as Avianca-TACA plan to join the alliance. It would be ludicrous for Star Alliance to rescind their invitation from Avianca-TACA just so that they might be chosen by LATAM. And that might is extremely unlikely, considering LAN’s close ties with oneworld airlines.

Brazil’s anti-trust regulator, the CADE, imposed a completely different set of conditions. The only one which affects alliances is that it mandated that LATAM join an alliance which is is already part of. This means that SkyTeam has no chance to pick up LATAM.

TAM’s switch from Star Alliance to oneworld would change alliance dynamics in South America drastically. oneworld will control the majority of long-haul traffic to and from South America. Star Alliance will only have Avianca-TACA and Copa to cover South America, while SkyTeam will be in worse shape with only horribly managed Aerolineas Argentinas to cover South America. oneworld is in an excellent position to take over South American market share. Of course, it is important to never say never when it comes to the aviation industry. There is always a chance that LATAM will join Star Alliance or the merger will fall through. But it seems pretty certain that oneworld will be the final destination for LATAM in the end.